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When will energy efficient homes reward the investment? Barclays

by: Tony Fullbrook, head of mortgage purchases at Barclays Mortgages
  • 03/07/2017
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When will energy efficient homes reward the investment? Barclays
The relevance of Energy Performance Certificates (EPCs) can sometimes slip under the radar. But how important are these findings to buyers, lenders and the future of the mortgage market?

With changes to Minimum Energy Efficiency Standards (MEES) in the pipeline, a prudent response would be – more than ever.

From 1 April 2018 the MEES legislation will make it unlawful to let buildings, or renew existing leases, in England and Wales that do not achieve a minimum EPC rating of E.

Scotland is slightly ahead of the game, having introduced section 63 in October 2016. Not that this increased focus should solely be centred on regulatory repercussions or be confined to the private rental sector.


Improve not move

In the current economic climate many homeowners are looking to improve rather than move.

Inevitably much of this revolves around a variety of home improvements and cosmetic changes.

However, there are also some savvy homeowners who are concentrating on investing in the energy efficiency of their property to become more environmentally friendly, improve living standards and lower their property related outgoings.

All still with a view to adding value.

Back in 2013 the Department of Energy and Climate Change (DECC) suggested that making energy saving improvements to a property could increase its value by an average of 14% – and up to 38% in some parts of England.

Studies across Europe have also suggested that sales of more energy-efficient homes come with a premium.

In addition, earlier this year the Committee on Climate Change (CCC) found that energy efficiency improvements had helped the typical household save roughly £290 a year since 2008.


Transformational design

Whether these projected increases have translated into significant rises in sale/resale price is still open to conjecture.

What is clear is that state of the art energy saving technology is transforming the design and construction of many new build homes.

Eco-friendly builds with integrated smart technology can come at an initial cost, although longer term financial benefits are evident.

On the flip side some modern methods of construction can dramatically lower build costs.

These factors underline the importance of buyers undertaking stringent research on individual builds when it comes to the purchase process.

But what does this mean for lenders?

Although concerns over environmental issues have advanced, and a variety of government initiatives have helped raise awareness over ethical and green lending, environmentally-linked mortgages remain somewhat of a niche product.


Underserved sector?

As with any product – individual business models, portfolios, funding lines and regulatory constraints will all have a hand in dictating provider’s intentions and aspirations for this type of lending.

Which leads to the question – is this sector being underserved?

To move forward there has to be a swell in demand combined with a greater lending appetite which needs to be driven by tangible benefits for consumers and providers over and above the purely eco-friendly motivation.

In terms of risk performance or affordability, energy-efficient properties should have lower running costs for consumers.

And if other suitable correlations can be identified there could be a stronger platform for more lenders to potentially extend ethical and risk-based decision and boundaries.

So could we possibly see a market which rewards environmentally-conscious property purchases? Who knows what the future may hold.

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